BP BP Plc

By Sarah Kent 

LONDON-- Royal Dutch Shell PLC on Thursday announced a near 60% slump in fourth-quarter profit, hit by sliding production and plunging global oil prices.

The Anglo-Dutch oil company's fourth-quarter profit on a current cost-of-supplies basis--a number similar to the net income that U.S. oil companies report--tumbled to $1.8 billion down from $4.2 billion a year earlier. Its profit for the year slumped 80% to $3.8 billion from $19 billion in 2014.

Despite the loss, investors reacted positively to the news. Shell's shares rose 4% in early London trading.

The sharp profit decline caps a week of dismal financial performances from the world's largest oil companies, as a 20-month slide in the price of oil forced write-downs and eroded earnings for 2015. Shell rival BP PLC reported a loss of $5.2 billion in 2015, on a par with the hit it took after its Gulf of Mexico blowout in 2010. Chevron Corp. and Exxon Mobil Corp. posted their weakest annual results in more than a decade.

Oil prices have fallen by around 70% since June 2014, hammering big oil companies' ability to generate profit from their oil and gas production. Though the likes of Shell and Exxon have sizable refining arms that tend to profit when oil prices fall, that hasn't been enough to offset the impact of the price slump.

Shell's exploration and production business lost $5.7 billion last year, hit by write-offs, falling prices and lower volumes. The company said its oil business brought in 48% less last year than in 2014 and revenue generated from natural gas fell 27%. Volumes tumbled 4% in the year, dented by a mixture of divestments, expiring licenses, security issues in Nigeria and limitations on output from a giant gas field in the Netherlands. Proved reserves--an indication of an oil company's ability to replace the oil it pumps every year--are expected to fall by 20% in 2015.

The results mark the company's last set of earnings before it closes its roughly $50 billion acquisition of BG Group PLC on Feb. 15. Shell has come under criticism from investors and analysts for the price it is paying for its smaller rival, but the deal will provide a welcome boost to volumes. Shell has said it expects its BG takeover to increase production by 20% and bolster reserves by 25% compared with the end of 2014.

The company has positioned the acquisition as a means to refocus its strategy as one of the world's largest liquefied natural gas producers and a major player in deepwater oil projects. The completion of the deal will mark "the start of a new chapter in Shell, rejuvenating the company, and improving shareholder returns," said Chief Executive Ben van Beurden.

Shell has already taken steps to cut costs and reduce spending to help mitigate the impact of slumping prices. The company said its operating costs fell $4.1 billion last year and are expected to fall another $3 billion in 2016. It plans to cut 10,000 jobs over the course of 2015 and 2016 and sell $30 billion in assets in the wake of its BG acquisition. Its dividends, though, remain protected and the company has promised to distribute payouts of at least $1.88 a share to investors this year.

"Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that," Mr. van Beurden said.

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

February 04, 2016 04:19 ET (09:19 GMT)

BP (NYSE:BP)
Historical Stock Chart
From Mar 2024 to Apr 2024

BP (NYSE:BP)
Historical Stock Chart
From Apr 2023 to Apr 2024